Dean Baker discusses government deficits.
First, the current deficit should not even be viewed as a problem. Yes, a deficit of $1.4 trillion is big, but this is a direct result of the loss of demand stemming from the collapse of an $8 trillion housing bubble. This bubble was driving the economy until its collapse. There were two channels through which the bubble generated demand in the economy: bubble-inflated house prices led to a boom in construction, bubble-inflated wealth led consumers to increase their spending, pushing saving rates to almost zero.
Basically, our consumer economy lived on credit, cheap imported goods, illegal immigrant labor, and moving money from place to place to make it look like more money. All of this in pursuit of higher real estate prices while simultaneously expanding the real estate supply beyond all measure of real estate demand.
And who knows how much money county governments sank into utilities for far flung new developments over the last decade that are now worth pennies on their previous dollars.
(I, of course, use the past-tense to describe the economy that was, not the economy we have now which has a foundation in attempting to re-create those conditions as evidence of "recovery.")
I get all of that.
So why would I compare Baker's column to a tree falling in the woods? Why is our nation focusing so much political capital on the Ryan Plan or the Bowles-Simpson Plan? Why does Baker's parallel universe sound a lot like the universe we live in?
I wonder if it is too late, and the debate to far gone, to insert dialogue like this into the conversation. But if there ever was a time, now would be it.
(HT: Alli)
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